DiligenceChina

Others have already referenced the CCTV program that makes it OK to talk about China as a world power (h/t ChinaLawBlog, GraniteStudio). The NYTimes article is worth a read if you’ve missed it.

And thus the pendulum starts to swing and the bi-polar nature of the Chinese manifests itself once again. Chinese people have always had a love-hate relationship with their own culture. Sure, I know – it’s all been wine and roses (bai jiu & plum blossoms?) for the last 10 years or so, but that’s not the real story. Chinese folks tend to swing from wild optimism to hopeless self-criticism and back again. There is never much in the middle.

Haven’t the Chinese always been proud of their culture? Sure, and rightfully so. BUT the Chinese have always drawn a distinction between China-the-place and China-the-culture/history. That’s the way it is with Diaspora nations. It allowed generations of Chinese go-getters to leave China but remain part of the Chinese nation.

The Chinese seem to be getting more comfortable with the Superpower mantle, though most of the yuppie Chinese managers in my MBA classes are still quick to qualify it as an Economic Power – not to be confused with the hegemonic ambitions of a certain unnamed pack of running dogs. China the Superpower will be peaceful and beneficent, but will be able to kick-butt if it needs to.

China is in the process of stepping up to the role of World Leader, and the implications for western businessmen are significant.

Sign of a market top? China’s impressive rise over the last 30 years was really a series of fits and starts. Many of China’s present successful policies grew from the ashes of past failures. The one guiding principle, however, was that China had to learn from outsiders and catch up. Is China getting ready to declare its arrival? Those that look at per capita GDP and rural health care systems are missing the point. The Chinese you hire, sell to, buy from and negotiate with are looking up at the skyscrapers and counting gold medals at the international games. To many Chinese under the age of 30, they’ve already arrived. As any good contrarian knows, self confidence leads to irrational exuberance, which leads to misery.

Policy implications? The Chinese policy machine believes that markets and economic forces can be managed and controlled. They have grafted technocratic methodology onto Party ideology to reinvent the notion of a centrally-directed economy. But fundamental to this notion of a centralized economy is the protection and strengthening of SOEs and quasi SOEs (where the government doesn’t directly own a majority stake in the company, but still controls its development and activities). Beijing still sees state control of the economy as the winning strategy, and that trend seems to be getting stronger. The China Inc. model is emerging as a type of state-entrepreneurialism, with a heavy bias towards export.

If you’re not first, you’re last. Ok, I apologize for the Will Ferrell, Ricky Bobby reference, but the Middle Kingdom has always had issues when it comes to playing nicely with others. They pay lip service to the “joining the community of nations” line that we all love, but China considers parity to be a milestone on the way to its true destiny. One aspect of China’s 4000 year cultural history is the notion that China stands between Heaven and the Barbarians of the Underworld. Guess which one you are? Look for Chinese companies to get more competitive as they prepare to go head-to-head with western MNCs. The Lenovo gambit has been a limited success, but HuaWei is looking like a winner. Chinese MNCs are going to go international in the developing markets first, and try to climb the value chain. Worked for a handful of Japanese and Korean companies – but almost no one else.

Will it make market entry easier or more difficult? Maybe it’s counterintuitive, but a confident China will be easier to deal with. China seems to feel that it is coming into its own, and that its policy of “learning from the foreigners” is working out just fine. WTO has been a big hit for China, and we can expect Beijing to honor the treaty obligations for as long as the WTO stands. But SOEs will be protected. Anyone looking for foreign involvement in TV, telecom, education or other culturally sensitive industries is in for a long wait. Entry will get easier – but exit may be trickier. Look for China to be increasingly sensitive about profit repatriation and changes in corporate ownership. If you don’t have an exit strategy, you ought to drop a line to your international lawyer and start looking at a range of scenarios.